U.S. Citizens – Tax Filing Obligations

Many American citizens and other “U.S. persons” in Canada are unaware and even surprised to find they have to file income tax returns, report their bank accounts and make other disclosures to the IRS in addition to the Canadian filings.

American FlagThe United States requires that all citizens file a U.S. income tax return and report worldwide income. The net broadens and captures Green Card holders who have not surrendered their status but reside outside of the U.S.

Taxed Twice?

The most common concern a U.S. person may have when finding out they need to file a U.S. return is whether they will have to pay tax again on the same money. The U.S. tax system provides for a series of exemptions and tax credit that are designed to eliminate double taxation and in most cases there is no (or very little) tax owing to the IRS.

What Must Be Filed?

For most U.S. person in Canada, the standard 1040 tax return along with a foreign earned income exemption or foreign tax credit must be filed. If you have a Canadian RRSP, RRIF or similar retirement account, then these must be disclosed and reported as well.

TFSA’s and Mutual Funds

If you own a TFSA or have mutual funds, the tax filing can be more complicated. The TFSA is not currently recognized under U.S. law or the Canada-U.S. Tax Treaty and you may have some tax owing to the IRS from those accounts.

With mutual funds, the passive foreign income company disclosure requirements add another layer of complexity and complication for the average U.S. person.

Bank Accounts & Investments

If you have a financial interest or have signing authority over any financial accounts outside the U.S. including bank accounts, brokerage and investment accounts, registered retirement plans where the total value of all accounts is $10,000 or more you are require to make an FBAR filing as well.

The FBAR filing is done directly through The Department of the Treasury (FinCen form 114) and filing to file can carry some hefty penalties.

What if I Have Not Filed a U.S. Return?

If you have not filed a U.S. return and are required to do so, you may qualify under the Offshore Voluntary Disclosure Program (OVDP). Under this program, you will be required to file the past three years of U.S. tax returns along with the last six years of foreign bank account reporting forms as well as pay any tax owing. In addition, under the OVDP, the U.S. person must also be a non-resident of the U.S.

U.S. persons looking to bring their tax filings up-to-date, can find help by giving us a call at (289) 288-1206 to discuss their specific situation.

Dean Paley

A graduate of Simon Fraser University, Dean started and operated an independent painting company while perusing a degree at SFU. After graduating from Simon Fraser, Dean entered the Certified General Accountants Program of Professional studies where he obtained the professional CGA designation. After a number of successful years as the head of finance for the Canadian operations in a global financial services firm, Dean moved into a marketing role and established and launched a tax, estate and financial planning support department and service to advisors and clients. During this time Dean successfully obtained the Certified Financial Planner (CFP) designation. Dean has been a member of the Canadian Forces Reserve spanning three decades serving in the Royal Westminster Regiment (B.C.), the Military Police and later as a commissioned officer in the Cadet Instructors Cadre in Hamilton Ontario. Dean Paley CGA CFP has been interviewed and quoted in major media such as the National Post, Financial Post, Toronto Star, Canadian Business, Money Sense and Investment Executive. Dean is married to his lovely wife Deborah and has four lovely children.